The right KPIs help professional services organizations understand performance in relation to strategic goals and objectives. They provide staff with clear frameworks, and enable companies to benchmark their business to industry peers.
Here, we discuss project backlog – the total value of contracted commitments yet to be executed measurable in either hours or cash. It’s a key tool for proactive planning and the basis for higher billability and increased profitability.
A flexible measurement
Depending on preference, PB can also be upscoped to include projects that have been planned but not yet confirmed. This offers a more realistic view of what the agenda actually looks like, but may count you slightly rich in yet to be realized revenue. In terms of time frame, looking three months ahead gives a good impression of how successfully a business is managing to sell its capacity.
Managing the pipeline
So, why is it important to have this information to hand? Due to high operational costs, many PSOs need employees to be billable for a high percentage of their time in order to realize profit. To make the right decisions while selling and planning projects, project managers need proper insight into the hours already sold and planned. Without this information, it’s difficult to ensure the backlog is optimally stocked for the coming period.
Healthy backlog = healthy business
Perhaps not surprisingly, our experience reveals that companies with an above average backlog realize higher fees and billable utilization. Conversely, companies with light backlogs experience lower utilization and rely heavily on discounting – often scrambling to make revenue commitments on time. They are often forced to sell cheap rather than not sell at all, leaving consultants parked ‘on the bench’ awaiting projects. Companies with a fuller backlog can be more careful about the work they take on, ensuring a strong match with their available skills and capacity.
Room for improvement
Our research has shown that more than 60% of PSOs have less that 50% of their quarterly revenue target sitting in the pipeline. When we think that these businesses still have to sell half their available hours within the next three months, it’s easy to imagine the pressure they can feel. This can lead to difficult choices in the quest to keep money coming in. Heavily discounting or taking projects from outside the sweet spot are unlikely to contribute significantly to the future long term health of the enterprise.
Creating insight
In order to efficiently fill your pipeline for the coming period, you need insight in planned and expected work, together with available capacity. Software integrating CRM and project management makes it easy to see how many hours are confirmed in the project management system, together with what’s expected from the sales opportunity pipeline. And as opportunities are confirmed, the system should make it a seamless process to move the quoted work over to the committed planning.
Making the right decisions
Once you have a complete, accurate picture of your commitments and your possibilities, you’re empowered to make smart decisions about where to invest your time. If you’re comfortable with the backlog, you can decide to only pursue projects that you’re absolutely sure will deliver profit. Alternatively, if you feel that an extra sales push is necessary, you can consider alternative tactics. Or choose to fill a specific gap by pulling a planned project forward. With more of your consultants busy more of the time on projects that fit them well, you’ll be well placed to see a significantly improvement in turnover.
